The Stupidity of Using Trade Deals for Geopolitics

October 12, 2014


The Very Smart People in Washington want to use the Trans-Pacific Partnership to solidify our political influence in Asia.  How did that work out with China and Russia?

Not well at all. 

Back in 2000, we were promised that granting Permanent Normalized Trade Relations to China, and smoothing the country's entry into the WTO, would spur China to undergo market reforms and become more like us.  This 5,000 year old culture that still views the "Century of Humiliation" as happening yesterday has no interest in being like us.

China's leader Xi Jinping is not quoting Adam Smith these days, in case you haven't noticed.

[Xi] cited Han Fei, a Chinese nobleman renowned for his stark advocacy of autocratic rule more than 2,200 years ago. “When those who uphold the law are strong, the state is strong,” Mr. Xi said, quoting advice that Han Fei offered monarchs attempting to tame disorder. “When they are weak, the state is weak.”

[A]n overlooked key to Xi's boldly authoritarian agenda can be found in his many admiring references to Chinese sages and statesmen from millenniums past.

We still hear the Very Smart People in Washington (like Treasury Secretary Jack Lew) saying that they are working to convince China to stop its mercantilism, its currency manipulation, and its disregard for Western-founded international institutions.  You bet.  How's that dialogue workin' out for us. It has been more than a decade since China joined the WTO, so we do have a track record... which is failure.

“This (Xi's reliance on ancient Chinese autocratic theory) is about finding some kind of traditionalist basis of legitimacy for the regime,” said Sam Crane, a professor at Williams College in Massachusetts who studies ancient Chinese thought and its contemporary uses. “It says, ‘We don’t need Western models.’ Ultimately, it is all filtered through the exigencies of maintaining party power.”

The same mistakes are made again and again.  Look at how breathtakingly inaccurate the Cato Institute was, in this piece from April 14, 2000, when the organization joined Bill Clinton in pushing for China's favorable trade access to US markets:

Ultimately, Congress should ask a straightforward question: Is it in the U.S. national interest to encourage China to liberalize and reform its economy in a more market-oriented direction?  The answer is a resounding yes. A vote in favor of extending PNTR to China is a vote for reform of the Chinese economy. It is also a vote for U.S. business and citizens who will reap the benefits of expanded U.S-Chinese trade.

 Congress did vote for China PNTR, and the result totally upended the trade dynamic in a very bad way.  It was seismic.  Nothing they said was right.

 Former Assistant US Trade Representative Robert E. Lighthizer pointed out how wrong they were in a report last year.

U.S. policymakers and the public were repeatedly told that China’s WTO accession would lead to significant economic and trade benefits for the United States. ... U.S. policymakers did not recognize the extent to which China’s economic and political system is fundamentally incompatible with our conception of the WTO. ... U.S. policymakers significantly misjudged the incentives for Western businesses to shift their operations to China and serve the U.S. market from there. ... U.S. government has been very passive in response to Chinese mercantilism.

That pretty much says it all.  The US Chamber of Commerce, the House Ways and Means Committee, the Business Roundtable and the globalist lobby still deny reality.  But reality is killing our economy as we de-industrialize and ignore the trade deficit.

Granting PNTR to Russia worked out similarly well.  I.e. failure.  Here's the predictions by the globalist lobby.  We would extend favorable trade benefits to Russia, help them into the WTO, and then Russia would play nice and want to be like the US.  Ha, ha, ha, ha. 

Since then, Russia has attacked Ukraine, annexed Crimea, and mocked western attempts to stop his work to re-establish the old Soviet sphere of influence. 

Take a look at this 2012 prediction.

Many Americans harbor an antiquated view of Russia, recalling the Cold War Era when the Soviet Union and the United States wrestled over ideology and influence in the world. The reality today is that Russia is one of the world’s most promising markets for U.S. exports. Of the top 15 U.S. trading partners, Russia was the market where U.S. companies enjoyed the fastest export growth last year (38%).

We have before us an opportunity to significantly strengthen our permanent normal trade relations (PNTR) with Russia and more firmly embed them in the global rules-based trading system to the tremendous benefit of U.S. workers and companies. And it won’t cost taxpayers a dime.

Oh... my... goodness.  Astoundingly wrong.  But Republicans and Democrats went along with it.

The lesson for the day?  The US international influence rests upon our economic strength. We cannot have economic strength until we become a trade surplus nation to balance all the years of deficits.  If our growth doubles, we will have influence.  No trade deals or other pieces of paper can substitute for this reality.


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